This blog details various ways to build up your savings and how my family does it in real life.

Tuesday, March 24, 2009

Realize What You Can Afford

Tip #103 - Realize What You Can Afford. It’s easy to look at the people living in 4-bedroom homes, driving new cars, going on vacation each year and think, “hey if they can do it, I can do it, too.” I don’t think you have to necessarily trying to be keeping up with the Joneses to think that if everyone else does it, that you should be able to afford to. It doesn’t mean that you are trying to “keep up” – just that you think the lifestyles around you are the norm and you should be able to afford that lifestyle, too.

However, if the guy up the street is making $100,000 per year and you are making $60,000, then you have to realize that you will not be able to afford the same level of living that he does. I know this is a different way of saying, “Live within your means.” But I think it bears stating this way because learning to live within your means to some people just means cutting back on eating out or lowering their air conditioning means that you will be able to have that great lifestyle now (or in the future) that others around you have.

Not everyone will become "rich" – even if they cut back on every possible expense they have. If you make a limited income, you need to realize that you can only afford things at a certain level. Period. With all things being equal, a family of four making $100,000 will be able to afford more expensive things than a family of four making $60,000. So there is no use looking at how those around you are living. It only matters what you can afford based on your income and resources. You may never have a huge house or grand vacations or new cars based on your salary.

If the $100,000 family is living in a 4-bedroom house, taking a vacation every year, and buying a new car every few years and still maximizing his retirement and savings, then they are able to afford the things he is doing. At $60,000 you should also be saving for retirement and other large future purchases. And by doing so you may only be able to afford a 3-bedroom house, a weekend getaway, and used cars. Some people will always be able to live more extravagantly than you. You just need to realize what you can afford and stay within those parameters.

In Real Life (IRL) – I live in a very nice town outside of Washington, DC. It is not the most expensive town around. A town not far from here is home to Senators and Congressman who live in multi-million dollar homes. When we were looking for a place to buy, I didn’t even consider that town. I knew we couldn’t afford to live there. It was “out of our league,” so to speak. And I didn’t want to even try living in the cheapest house there because we’d be living among people who could afford European vacations and housekeepers. Instead we chose to live in a nice, run-of-the mill town with people who live a wide-range of lifestyles. There are plenty of million-dollar homes here. But there are even more 1950’s 3-bedroom 1-bath ranch homes. Some people go off on fancy vacations. Others never go away. It is a comfortable place where we can live within our means and not feel like “everybody else” is living differently.

My daughter’s best friend from school lives in a million-dollar home. They also belong to a country club. If that’s what they can afford, that is their business. We, on the other hand, live in a modest ranch house and don’t even belong to the public swim club. It is what we can afford and I am okay with that. In fact, I am more than okay with it. I have no desire to live in a large home and belong to a country club. We still do activities that we can afford – vacations, evenings out, and classes. On the other end there are people here who live in smaller homes and do less than we do. And I hope they are living on what they can afford. We set reasonable goals based on our income. We know our “level” of living, which includes savings. We don’t aspire to have lifestyles that exceed our income. And unless you have plans to actively increase your income, you should not either. You need to realize what you can afford based on your income.

About Me

I am a SAHM who has always been interested in putting away money, spending less, and looking for a cheaper way to do things. My husband and I hope to retire by the time we are 60.
I am currently 44 years old and have saved a substantial amount of money since I graduated from college 20 years ago. This was done by saving, careful managing of money, and wise investing. While I do have a finance degree, it certainly doesn't take one to accumulate money. The big key is to take in more than you let out. Join me here and I'll show you how!

Welcome to Saving Money Tips In Real Life (IRL)

This is where I give tips I have learned over the years on how to save money and how I have applied them in my life. There are no quick-rich schemes. Just common sense ideas on saving money, spending it wisely, and how it works in real life.

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